Credit Card Grace Periods Keep Shrinking

By consumerist.comNovember 15, 2007

The Kansas City Star reports the amount of time people have to pay their credit card bills keeps getting smaller, increasing the likelihood of incurring late fees, late fees which have been rising in cost over the years. Consumers used to have 30 days. Then it was 25. Now companies are moving towards 20. Furthermore, the date starts when they issue the bill, and it can then take 2-4 days to reach you. Cattle prods towards customers using online bill pay, death by a thousand fees. Keep an eye on those due dates, you never know when they’ll magically shrink again.

“Consumer experts often say that if you are new to credit or are trying to repair your credit, start with a secured credit card.”

Am I the only one who thinks secured cards are one of the biggest rackets in the lending industry? They take your money and *maybe* give you 1-2% interest on it. Then they turn around and charge you 15-20% to borrow it back from yourself! Not to mention the extra “account management” fees.

I put all grocery, gasoline, and restaurant expenses on one card and pay it off in full each month. I’m paid at the end of each month, and my payment has always been due 5-7 days after I’m paid. Lately, it’s been creeping forward–and for this month it finally was due on the day I got paid. Fortunately, the customer service person changed it without any argument, so that I now have a week between payday and payment due. We’ll see if it creeps forward again.

@freshyill: With my credit union’s visa, I can take a cash advance from an ATM overseas with absolute no fee for the cash advance or currency conversion. I then pay it online when it posts to my account and the fee to get 200 euros comes to about 35 cents.

@LostDog: You’re assuming that the only reason to use credit cards is because you don’t otherwise have the money to spend. In fact, I don’t put anything on a credit card unless I know that I have more money in a liquid bank account.

Though I’m not sure, I feel they are upping the due dates for those of us who pay off their bills on time (no balances) in order to earn late fees because they don’t earn any interest off of this group.

@LostDog:
Float – if you churn a lot of money through your credit card you may be giving up a lot of interest on your own money in the meantime. It’s not uncommon for some business people to churn $10,000 or more through a card in a month, which would make a good chunk of change on interest sitting in your bank account.

Protection – credit cards still protect you better than debit cards, legally. Although many banks will now replace your money pretty quickly in the event of fraud, they don’t have to during the investigation. And that’s your money, not the CC company’s. Also credit cards usually have better side benefits like extended warranty protection and car rental insurance.

Rewards – if a debit card has rewards, it’s usually not nearly as good as the best rewards credit cards. I make hundreds of dollars per year off of rewards.

I kind of agree with Lostdog–I think a lot of people use credit cards because they don’t have the money at that moment. Maybe they’ll get the money by their next paycheck, but it’s again after the fact.

I was someone who got into a lot of credit card debt, was able to pay it all off, and for a long time only used cash and my debit card for fear of getting back into debt. Using a debit card/cash for 2 years forced me to learn how to budget and not overspend. Now I am using credit cards again (for the rewards) and I pay them off early (before I get the bill online). This time around I also have an emergency fund, but I think a lot of people are falling into the credit card debt and the best solution is to cut up the cards and learn to live only on cash/debit.

@gingerCE: They do still make money off of you, though, even if you don’t carry a balance. They make money from the fees ultimately charged to merchants (usually 2-4%). The only time they might lose money on you is if they are paying out more in rewards to you than they were making from the merchant and interchange fees. That will generally only happen if you say, have a 5% rewards card for certain categories and you only charge purchases in those categories to it.

Credit cards are worth it just for the ability to dispute charges if a merchant screws you over after you paid. Good luck trying to get that cash back without a lawsuit in many cases if you use a debit card.

If you have online bill payment with your checking account, like at BoA, set up a recurring payment to your credit card for an amount you know will cover the minimum payment. Then, when you get the CC bill, pay the remainder. With no ongoing effort you will never have another late charge.

@gingerCE: I agree that credit cards are too much of a temptation for some people, and those people definitely shouldn’t use them until they have learned better budgeting and organizational skills along with self-discipline. Credit cards are definitely a potentially dangerous tool, and it sometimes takes a fairly sophisticated and vigilant person to keep up with all the account changes, etc like this one that the credit card companies throw at you. But they’re also a very useful tool for people who do have those sorts of skills, for some of the reasons I gave and others.

The problem most people who get into trouble with CC debt have is overspending and not budgeting well, not the credit cards. The credit cards DO let people like that dig themselves deeper into a hole sometimes. You definitely need to learn those skills before using a credit card to maximize your money. I used a debit card exclusively for several years while in college. Now I never use one, because it doesn’t optimize my cash flow.

I noticed that on my credit card. Besides that, I’ll see the statement date on the website, but won’t get the actual statement until a week later. So I’m left with what is about 13 days to pay back when it should be at least 3 weeks.

That is, of course, if I paid be a physical check. I pay online, and check the account at least once a week to see if the bill was issued. If it has, I pay it all off right then and there.

Cash management – with a credit card, you don’t need to have your spending money sitting in a low-interest checking account (yes, I know that there are ways around this like sweep accounts, debit cards linked to savings accounts, and higher interest checking…but still, almost all checking accounts have lower interest rates than savings accounts and savings accounts have a monthly transaction limit). So you can leave all your spending cash in a high-yield savings account and only transfer it out once a month to pay your credit card bill.

Annoying holds on debit cards – some businesses, particularly gas stations, hotels, and car rental places, will place large authorization holds on your card when you give it to them (since they don’t know what your final charges will be when you first give them your card, and want to make sure you can cover the potential charges). This can tie up money that is actually YOURS needlessly. When the same thing happens on a credit card, it only ties up part of your credit line instead of your actual money. So it really doesn’t even matter on a credit card as long as you have a large enough credit limit to cover it and your other charges.

Yet another reason banking in America needs some STRONG regulations enacted. The current admin and the last three Presidents before him (Clinton, Bush and Reagan) had no concern for the common person and gave the credit industry virtually anything they wanted. Watch Frontline’s “The History of the Credit Card” on PBS.org to get the low down on the scams and sheer theft credit card industries get away with.

The shrinking grace period is designed to make you default so they can charge you those 30%+ penalty rates on the unexpired teaser balance transfers you made. It’s as close to a bait and switch as they can get.

@Pop Socket: There are other explanations besides just this. For example, due to inflation and the lost opportunity cost to make money elsewhere, it costs a bank money to loan you money interest free. It costs them less when they loan it to you for a shorter time, quite simply. It also reduces their exposure to risk. I think it’s possible that some of this “tinkering” is designed to trip people up, but a lot of it may also be due to the currently tight credit market. Banks are very worried about exposure to risk right now, and are having cash flow problems due to the whole subprime mess and related fallout. Shortening grace periods helps to reduce risk and increase liquidity for the bank.

Is that even legal? Are there any federal regulations mandating a minimum grace period for CC companies? I don’t charge much to my cards and I always pay the balances in full, but I avoid online payments b/c I like the protection of a paper trail (and b/c until recently, I didn’t have a reliable or secure internet connection).

@Pop Socket:
Grace periods and due dates aren’t the same thing. The grace period is the time period in which you can pay your balance without the CC company assessing an interest charge to it.

@goller321:
No, we don’t need MORE government, but better fiscal responsibility from the American people. If people wouldn’t borrow so much money they don’t have on crap (most CC purchases are NOT for necessities!) then it would be a non-issue. Everyone reading this could do themselves a HUGE favor by putting your cards into the shredder today and only paying for things when you have the cash to do it.

@sixseeds: Yes, it’s legal. They aren’t legally obligated to offer a grace period at all (it would be perfectly legal for them to charge interest from the moment of purchase). They offer the grace periods mainly for competitive reasons. Some credit cards marketed towards people with “subprime” credit don’t have grace periods, in fact.

I actually feel safer paying online because there isn’t the risk of them “losing” or “delaying” my physical check for a few days in order to stick me with interest or late fees (which I wouldn’t put past some of these companies). But I do think it’s safer to pay with online billpay “pushed” from your bank rather than “pulled” from the credit card company (since I don’t like letting them pull from my accounts). You do get a paper trail that way, since the transaction will show up in your checking account, and be printed on your paper bank statement if you get one.

@freshyill: I have the PSECU Visa, too. (But I was talking about the BofA AAA rewards card above) Here’s a tip: if you run up a balance on another account, transfer it to the PSECU Visa online for 4.9% APR with no transaction fees. I think the APR lasts a year or so, with no deferred interest. The great thing about PSECU is that they aren’t out to screw you.

@LostDog: No, you don’t, necessarily. It depends on how the transaction is run and therefore what network the transaction is processed over. What you say is true if it is run as a credit transaction and processed over VISA’s network, but not if you run it as a “PIN” transaction and it’s processed as a direct debit transaction. VISA only offers protection on transactions that flow over their network. Most people aren’t aware of the fact that your transaction on the same card and same payment terminal can go over entirely different processing networks depending on how it’s run. And the banks and VISA have not done much to educate people about these distinctions.

@sixseeds: Is that even legal?If someone is going to lend you money, they pretty much get to make the rules. Your option, if you don’t like their rules, is to simply stop using their card and borrowing their money. I avoid online payments b/c I like the protection of a paper trail…If you’re relying on the USPS to be your ally in delivering bills to you and payments from you to the right place in a timely manner, it’s not a question of if you’re going to be paying late fees and 30% interest rates, it’s a question of when. Get online to not only pay your bills, but receive them, as well.

I personally pay the bill the very same day it becomes avaiable online… or if I am juggling around several payments that month (doesnt happen often… only when I seem to have over-deposited into my savings acct) I schedule a payment the second to last day the bill is overdue (I can do that online as well) …. with it being scheduled online I dont have to bother with stamps & mailing.

@johnva: I do think it’s safer to pay with online billpay “pushed” from your bank rather than “pulled” from the credit card company (since I don’t like letting them pull from my accounts).Respectfully disagree. I use the “pull” option to pay on the due date whenever it’s offered by the creditor and have never had a rogue pull from my numerous accounts in over 10 years. Making a bank-initiated “push” payment on the due date is especially risky if the creditor cuts off payments early in the day, as some do.

Initiate the payment from the creditor’s website and be sure to note the confirmation number. In the highly unlikely event something goes wrong with the transaction, you can always fall back on telling them that it was their system that screwed up. The creditor won’t be incredibly sympathetic if it’s someone else’s screwup.

@melmoitzen: Good point. That’s why I always do my push a few days early and verify that it’s credited on the credit card company’s website while I still have time to pay it via other means if necessary.

@johnva: “Yes, it’s legal. They aren’t legally obligated to offer a grace period at all”

But surely something like that would have to be spelled out in the card agreement details, would it not?

Can my cable/phone/etc company set the bill’s due date to the same day they mail the bill to me and charge me late fees as a result?

I’m getting fed up with my Citibank card both moving the date up and taking longer and longer to mail the paper bill. It’s at the point now that when I receive the paper bill there are only 2 weeks left before the due date. I figure 1 for the mail, and I’m left with 1 week’s notice. I often travel for work for weeks at a time, so this is particularly troubling to me.

@sixseeds: Its in the contract signed by the card holder. Something to the effect of “I hereby authorize Visa/MC/AmEX/Disc. to take me to the woodshed at their discretion.” Its their game and their rules. Federal laws? Its the credit card companies that have the ear of Capitol Hill, not you.

@noquarter: Yes, it does have to be spelled out in the cardmember agreement. They also have to give you notice if they update the agreement to change the length of the grace period (or eliminate it). Late fees are different; the grace period just means the time in which you aren’t accruing interest charges. Even on cards with no grace period you still have to pay your bill on time, obviously, to avoid late fees. The only difference is that you also have to pay interest on those cards from the purchase date, so it’s a good idea to pay it as soon as possible. So it’s a little confusing.

It is getting to be a lot shorter, though, you’re right. This is why online banking is a good idea; I really don’t trust the postal service that much since they seem pretty unreliable where I live. Online banking is especially a good thing if you travel a lot since you can pay your bills from wherever you are without having to wait for the actual paper copy.

@anatak: “Its in the contract signed by the card holder. Something to the effect of “I hereby authorize Visa/MC/AmEX/Disc. to take me to the woodshed at their discretion.”“

I agree with your point, but I want to mention that AmEx is slightly better in this regard. I just got a card with them, and one of the terms in the card agreement is that I get a full month to pay the bill.

Like everyone else, they have a “mandatory arbitration” clause in there, so it’s not like they’re completely avoiding the woodshed pact. But in this one regard at least, they appear to be better.

@johnva: With your debit card >If you sign for it, its between you and Visa (Zero liability). >If you use your PIN, its between you and the bank (policy varies).[www.usa.visa.com]
The banks and VISA have not done much to educate people, period.

@noquarter: “…one of the terms in the card agreement is that I get a full month to pay the bill…”
Which is subject to change at any time, right?

“AmEx is slightly better…”
Better than terrible? Slightly better than terrible is…? They are all out to get you. Giving you a full month to pay, for now, is pretty well irrelevant when compared to everything else going on. They are all snakes trying to bite you. Is a rattlesnake bite better than that of a Cottonmouth because the rattler gives you a warning first? I’ll take neither, thank you.

@anatak: I always point this out when I talk to people who think debit/check cards are equivalent to credit cards in protection. They’re not, even though the banks are trying their hardest to get people to think they are (since they make the bank money, rather than VISA, when they’re run as direct debit). Your bank may have a good, generous policy on debit cards but the legal regulations are not as strong. Also, merchants like to “encourage” you to use “debit”, even though the protections are not as strong, because they get charged less for the transaction. (Actually, the weaker protections are one of the reasons the fee is lower. Those fees pay for the liability protection, in part).

@melmoitzen:
“If someone is going to lend you money, they pretty much get to make the rules. Your option, if you don’t like their rules, is to simply stop using their card and borrowing their money.”
No, we have consumer protection and predatory lender laws, so that is patently false.

Here’s a radical concept — don’t buy shit you can’t afford. Can’t afford = don’t have money for. Not will have money for, but don’t have actual money for now. Then there’s no problem with any due date. Imagine that.

@FLCONSUMER I think you’re missing the entire point of credit, especially the grace period. The grace period is a very nice feature because it extends you a no interest loan. A very common accounting prinicple is never pay your bills before they are due, keep your money your money. If you keep that money stored in a high earning money market or savings account you’re easily earning an extra 4-5% interest on it for another month.

Credit can also tactifully be used to purchase items that have a high up front cost that you can break into term payments. Done with careful planning this is a very nice feature. Done carelessly, well it causes problems. The same that any repeated careless actions will inevitably cause.

@Buran: Definitely not; of course the credit card companies are only out for profits. They view lending money out as an investment. I’m just saying that there is no free lunch on the liability protection. Merchants pay more for credit cards in part because it costs money to provide all these nifty things like high rewards and buyer protection. They also charge a lot to merchants because they have a near-monopoly and merchants will pay them high fees because otherwise they would lose lots of business.

@DallasDMD: Can you show me any credit card agreement that says your terms aren’t subject to change, given adequate notice?

I guess I wasn’t clear, but that’s what I meant when I said the lender can “pretty much” make the rules. Obviously, there are limitations to what they can do, but your only recourse against subjecting yourself to changes in terms might be to stop using the card for new charges entirely.

Say what you will about credit card companies, but recognize that they’re smart enough to have armies of very well-paid lawyers on hand to ensure they’re not doing illegal s**t. Sleazy, backhanded, conniving s**t, yes. But illegal s**t, no.

I read a lot of personal finance forums and folks seem to gloat about getting credit card companies to waive a late fee or reduce their interest rate from 30% to 15%, as if they’ve won some sort of Supreme Court legal victory. It’s not a legal victory, it’s simply a concession to keep your business.

@Buran: Wrong? No, there was nothing incorrect about my statements. Your beating of your chest about ‘federal law this and federal law that’ is a moot point. An issue that serious would have to fail resolution at the bank level, fail resolution at the card issuer level and then escalate to threatening suit for violating federal law. I wouldn’t do business with a bank that doesn’t have a robust fraud protection policy. Even with your federal law “protecting you”, do you think that credit card companies don’t violate federal law every day in their collections departments?

I’ll stick with cash and debit and not take on the unnecessary risk of debt, thanks.

@anatak: What do you mean, I “didn’t read Visa’s web site”? I have no clue what you’re getting at. It says exactly what I said on your link (which is that Visa’s fraud protection does not cover you if the transaction is not processed over Visa’s network). Now, the confusion may be that Visa DOES have their own network now that DOES do PIN-transactions. But not all PIN transactions at all merchants are guaranteed to go over Visa’s network just because your card has a Visa logo. What the Visa Check Card system does is make it so that your debit card can be processed just like a normal credit card (with signature, etc) if (for example) you use it in a situation without a PIN pad.

Credit card and debit card processing is fairly complex on the back-end and there are many networks it can go over. If you look at the back of your debit card you will probably see that it can be used on other networks besides just Visa’s.

And just because there is “debt” does not mean it’s higher risk. I think it’s actually lower risk since I’m not giving a gazillion different merchants direct access to my checking account.

@johnva:
Since links are hard, I’ll copy and paste:
Visa’s Zero Liability policy took effect April 4, 2000, and is a great improvement on the previous policy. The former policy required that you report fraudulent activity within two business days of discovery. After this two-day period, you could be held responsible for up to $50 of the unauthorized charges. With the new Zero Liability policy, you’re no longer required to report fraudulent activity within two days and you’re not responsible for any fraudulent transactions made over the Visa network.

The Zero Liability policy covers all Visa credit and debit card transactions processed over the Visa network-online or off. The only transactions not covered under the Zero Liability policy are commercial card, ATM, and non-Visa-branded PIN transactions.

For transactions on other networks, the liability decision is left to the financial institution that issued your card. The issuer has the option of extending the same protections afforded by Visa’s Zero Liability policy.

“And just because there is “debt” does not mean it’s higher risk.”

Wow. Your statement says so much about America. Negating the risk doesn’t make it go away.

From your quote: “The Zero Liability policy covers all Visa credit and debit card transactions processed over the Visa network-online or off. The only transactions not covered under the Zero Liability policy are commercial card, ATM, and non-Visa-branded PIN transactions.”

Like I said, just because you use a debit card with a Visa logo does not mean it will be processed over the Visa network. It can be processed over other networks as well in many cases. What don’t you get about this? Visa doesn’t provide liability protection for transactions that never touch their network. And the majority of online debit transactions (PIN-based) on the U.S. are not processed via Visa’s online debit network. Instead, they go through networks that originated to link ATMs. In that case, Visa’s Zero Liability policy doesn’t help you, and you are reliant on protections and regulations in law (which are less stringent than for credit cards) and your bank’s policies (which may or may not be as good as their policies for credit cards).

As for the risk associated with taking on zero-interest debt that I can pay off immediately at any time, please explain to me what you’re talking about. Or is your aversion to debt more of an emotional or religious thing?

@darkened: No, I’m not missing the point at all. I use my credit cards to 1) get points, 2) put off paying for the stuff for another month, 3) earn interest on my money in the bank for an extra month before I pay the CC bill.

If a “large purchase” is more than you can afford to pay off in one month, you probably can’t afford the item. Emergency expense? That’s what emergency funds are for. Living on credit is really living in debt, not a good way to live.

Dissatisfied with the due date, interest rate or other issues with your current credit card? Call your credit card company and ask for a better deal – you might be surprised at what they’ll offer, especially if you’re holding a competitor’s “pre approved” card offer in your hand.

For cards you carry a balance (and pay interest) on, use the “pre approved” offers received from other banks to get a lower rate. Your current bank would rather keep your business at a lower interest rate versus losing everything if you transfer your balances and future purchases to a competitor’s card (and, unlike opening a new account, this doesn’t generate a hit on your credit report for an inquiry).

Best bets: Have one card you pay off monthly for everyday items; this card should be one with an automatic monthly rebate applied to your statement. If you aren’t getting at least 1% cash back on all purchases, start shopping for a better rewards card.

Use a second card with the lowest possible fixed interest rate for major purchases you plan to pay off over time. If you have excellent credit, the APR shouldn’t be over 9.99%.

Finally, set up your accounts so you receive both paper (snail mail) and e-mail statements. This reduces the chance of a late payment due to not receiving a bill on time.